The Trader: Trades outside the RNS

Michael looks at trades that don’t come through the RNS yet can still be considered price-sensitive news.

The RNS is one of the best place trades, whether the trades be Opening Drive scalps or swings.

Setting up your own specific filters (or using mine) is another of the best places.

Examples of places that are not good include following anonymous rampers on Twitter, scouring bulletin boards drinking confirmation bias Kool-Aid, and your mate who thinks the stock is “cheap”.

As an aside, whenever you ask why said stock is cheap, more often than not they’ll struggle to give you an answer. But rather than admit that they’re talking rubbish, most people will double down and jump on any piece of information they can recall about the stock, in an effort to justify their own opinion.

Obviously, for the efficient market hypothesis to not be a load of baloney, it would require people to objectively realise they have no idea, reassess their opinion, and instead admit that they don’t know and go and do some actual research.

But I dread to think how much money has been lost in financial markets because of ego and people not wanting to be wrong, and so in small-cap stocks, it’s often uneducated punters and people who allow their emotions to control them rather than the other way around that are the competing traders.

Indeed, price drives the narrative. The same objections to a stock, when it was on multi-year lows, can still be true when the stock has doubled, yet suddenly the market cares less because it’s uptrending.

That’s especially true for traders who often only care about the chart.

In any case, another place to find great traders is outside of the RNS.

Not all price-sensitive information is published through the RNS.

When I say price sensitive, in this meaning, I’m talking about anything that moves the price, whether it’s specific to the company or not.

Gulf Keystone Petroleum

Turkey’s President Erdogan went to Iraq to talk about water and security. And as you might know, the Iraq-Turkey Pipeline (ITP) is currently shut.

It’s not terminal to GKP as it can sell oil locally, but this is at a far lower price than the profits it could be making.

As we can see, the stock rallied Monday on speculation that this meeting would provide a resolution for the ITP.

If you knew that Erdogan was visiting Iran then you could’ve surmised this would’ve been speculated, and taken the trade.

I wasn’t aware of it so I missed it.

But when the ITP issue wasn’t resolved?

Well, what goes up, must come down…

And that’s exactly what happened.

A better trader than me once said “Don’t think, just do” (and someone cooler than him said it in a movie). The trade made sense so I hit it short. Sometimes it doesn’t need to be complicated.

The stock uncrossed at 120p and spent the day tracking lower.

Trainline (TRN)

Trainline is another stock that has moved on headlines before.

Previously, the government announced it wouldn’t be building its own ticketing system (and therefore not competing against Trainline in the UK).

This wasn’t published in the RNS. But it moved Trainline significantly.

The same happened this week.

The Guardian published an article that “Labour promises rail nationalisation within five years of coming to power”.

No specific mention of affecting the ticketing system was mentioned; however, it spooked the price.

Any fears of regulation to upset the apple cart and harm Trainline’s profits can see nervous longs sell out, as well as aggressive shorters taking a position based on good risk/reward.

If you know that a potential piece of news might move the price, and the stock price is opening unchanged, then you’re not paying a premium (we talked about news premiums a few articles back) in order to position yourself in the stock.

Then, if the news doesn’t move the price, you’ve paid a set of commissions and a tiny spread fee as a loss.

But if the news does move the price, then you’ve achieved a multi-R trade because you got the news for free and the market reacted after you took a position.

In this instance, you’re not trading the company, you’re trading what other market participants might think of the news.

It could be that absolutely nobody believes that Labour will change the ticketing system and disrupt Trainline, but if some people think that others might believe that Labour will change the ticketing system and disrupt Trainline, then the price can move.

These types of trades are never going to be your bread and butter trades.

But keeping your eyes open for headlines and thinking about what stocks could this affect is always a good idea.

Michael Taylor

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Twitter: @shiftingshares

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